It was just like the bad old days in financial markets. Screens in dealing rooms turned a sea of red as stock markets plunged in the familiar domino style: first Wall Street, then Asia and finally Europe.

This was the first big share price fall of Donald Trump’s presidency and there was a notable absence of tweeting from the White House boasting about how Americans had their president to thank for booming stock markets. Instead, there was talk of bubbles being burst following a rise of more than 40% in the Dow Jones industrial average since Trump defeated Hillary Clinton in November 2016.

If there was ever an example of political leadership selling out their constituents for their own agendas it is the coalition negotiations happening in Germany right now.

Both Angela Merkel and SPD Leader Martin Schultz have to retain power in Germany in order to retain power in Brussels heading up the European Union. To do this they will agree to anything regardless of what Germans actually want.

Not So Grand After All

The talks between the two to form a government have resulted in a Grand Coalition bargain that no one is happy with. And it’s killing Schultz’s SPD among voters. Thanks to Mike Shedlock over at Mish Talk, we’ve got the latest German political polling.

The SPD is down to 18%. With Merke’s CSU/CDU’s 33% they barely have the support of a majority in Germany. Since the election the SPD has lost more 2.5% or 10% of its support.

This is the SPD that ran Germany for decades. This is the SPD that got 25.7% in 2013. Martin Schultz’s approval rating among Germans is dropping faster than Hillary Clinton’s at a rape survivors club meeting.

Seriously, Schultz is approved by just 25% of Germans. Frustration is growing among German voters. Mike makes the salient point that:

That Germany has no new government more than four months after the election is barely comprehensible to the Germans: 71 percent do not understand why it takes so long to form a government.

I think part of this 71 percent fully understand that Merkel and Schultz are working so hard on this Grand Coalition for not Germany’s sake but for the European Union’s. That’s the reason why support for the minor parties is growing at the SPD’s expense.

If the SPD votes down the coalition agreement, which is becoming more likely by the day, then these talks will fail and Germans will have to go back to the polls. German President, former SPD leader and Merkel’s foreign minister during the last government, Sigmar Gabriel does not want a 2nd election.

He knows the results would be catastrophic both for Merkel and for the SPD. Merkel would have to step down as head of the CSU/CDU Union party and then the whole situation bursts wide open.

The Alternatives to Grand Plans

If the coalition is ratified by the SPD then it will create an unstable alliance and Alternative for Germany (AfD) will assume the Opposition Party role in the Bundestag. Any opportunity for AfD to govern will add credence to it among Germans.

This is a win-win scenario for Eurosceptics in the end. Either way the opposition parties rise in value to Germans as the Union/SPD will take the blame if the government fails. AfD, the FDP and Der Linke will continue gaining support.

The bigger the toe hold AfD gains in national politics the less radical they appear. Basrriers to people voting for them will crumble. People are bonded to their party like their sports teams. It’s basic human in-group/out-group bias behavior.

So, while Germans may not be ready to hand AfD the reins of power yet seeing them in government legitimizes them for the long game. And that’s the nightmare scenario for EU-firsters and Marxists like Merkel and Schultz.

This is why they are fighting so hard to retain power. They know the next four years are important to the survival of the EU.

This is their window of opportunity to go for further political and monetary integration. This is why they both agree on the European Stabilization Mechanism against the wishes of Germans.

In true Progressive fashion, both Schultz and Merkel agree that Germany must lead a greater Europe to save it from its own tribal in-fighting. But, to do that they need to also destroy German culture in the process.

Thankfully the German people have woken up to their insanity at the right moment in time. Let’s see if its enough for 2018.

Euro Worries

If the SPD rank and file reject this coalition agreement that will likely mark the top in the Euro. For now the markets believe the story that it’s just a rubber stamp away and regime certainty will prevail.

But, if it doesn’t then there will be accelerating capital flight out of Europe. The U.S. dollar will bottom, the euro will peak and bond yields will begin rising sharply.

In fact, they already are and I fear that this rally in the euro is a rush to cash before a market dislocation. This is why eurodollar markets are crashing, the dollar has been in free fall while bond yields are rising.

Now that stocks are correcting this feels more and more like the prelude to a liquidity shock than anything else. And the epicenter for it, in my opinion, is in the details of the European political nightmare unfolding.